Skip to Content

Any other business

It has more companies than citizens, but the prince’s tiny tax haven is thriving

John Andrews on city life in Liechtenstein.

10 October 2007

5:27 PM

10 October 2007

5:27 PM

John Andrews on city life in Liechtenstein.

The speed limit on Swiss motorways is 120km per hour and, if you’re travelling from northern Italy to southern Germany through Switzerland at exactly that speed, you’ll spend a scant ten minutes traversing the entire western border of the sovereign Principality of Liechtenstein. Glance to your right about halfway up the country and you’ll notice a fairy-tale castle perched on a hill, overlooking a small town. This town, as well as being the geographical centre of the tiny, landlocked state (the fourth smallest in Europe), is also its political focal point: welcome to Vaduz. It was founded in the 13th century, and both it and its country had their credentials strengthened some time later by a King Wenceslas (no, not that one). In those days — long before the involvement of the family who were to give the country its name — the region was part of the Holy Roman Empire, and since then Liechtenstein, governed from Vaduz, has developed through a succession of allegiances. In 1923 it formed a union with Switzerland, with which it shares a currency and a postal system (although famously it still issues its own stamps). There are no border controls, either; just some discreet signs on the bridges that span the Rhine to let you know that you are now in a separate sovereign state. Despite its close links with its neighbour to the west, it has a distinctly independent identity, one that its government and royal family — both based in Vaduz — are rightly keen to maintain. Having Swiss citizenship myself, I voted, only a few years ago, in favour of Switzerland joining the United Nations, one of the last countries to do so. Liechtenstein had already signed up several years before, and is also a member of the European Economic Area, a situation the merits of which the Swiss have yet to be convinced about. Anyone who thinks Liechtenstein is just another canton of Switzerland, with a tourist-pleasing royal family tagged on, should think again.


This independence of spirit, and unwillingness to accept the status quo, has made its mark within the confines of Vaduz itself. Four years ago the reigning Crown Prince, Hans-Adam II, came into conflict with the government over his wish to introduce reforms that would, among other measures, extend his personal powers. It was put to a referendum. The Prince, popular with his electorate, had a trump card up his sleeve: the suggestion that, should the vote not go his way, his family might pack their bags and move to Austria. A principality sans princely family would be a shadow of its former self even if, as Hans-Adam pointed out, they had actually only lived there for around 70 years. After an impassioned debate, the Prince won by a factor of nearly two to one. Any politician would give their eye teeth for such a majority, even if convincing wins are not unusual in this country: FC Vaduz trounced northern rivals Ruggell 8-0 to win the Liechtenstein Cup (again), and thus be eligible for entry into this season’s Uefa Cup (again). Given that Vaduz is the only football team in Liechtenstein to play in a high-ranking Swiss league, this domination might not be surprising. What does raise the eyebrows in admiration is that Vaduz, with a population roughly a fifth of Chichester’s, has progressed to the second round of the Uefa Cup for the last three years. And on a national level, a country whose surface area is less than half that of the Isle of Wight can muster a team that does not disgrace itself in its battles against its vastly larger European rivals. Three years ago, they drew with Portugal, the losing finalists in that year’s European Championships.

If David Beckham had ever been tempted to don the illustrious shirt of Vaduz, it would no doubt have been for one over-riding reason: tax. Or, largely, its absence. Since the second world war, when Liechtenstein was so poor it had to sell off some of its art collection to raise funds, it has developed a remarkably successful reputation as a tax haven. Hand in hand with this, and in an admittedly rather less positive light, its watertight banking secrecy has not gone unnoticed among some of the world’s more unsavoury characters. From time to time, this has caused problems. The larger-than-life British newspaper tycoon Robert Maxwell, having quietly trousered his workers’ pension funds, hid them in anonymous bank accounts in the principality. A few years later it was reported that a former ruler of Nigeria had squirrelled away around $100 million in accounts here, a sum presumably rather in excess of his accumulated salary as a government official. Given that Vaduz is the registered home of more than twice as many companies as the entire country has citizens, and with countless more private accounts (often, in those days, anonymously held), it was clear that the existing regulatory and supervisory resources couldn’t cope with the explosive growth in the financial services industry. At the end of the 1990s, embarrassment was caused by a report from the German intelligence services which alleged that money-laundering was rife. The Prince and government in Vaduz moved to tighten up the regulations against white-collar crime, enlisting the help of legal experts and financial crime investigators from Austria. Many of the previous problems had arisen simply from a shortage of qualified manpower; hundreds of court cases had remained unresolved for years. The drive towards the consolidation of the country as a ‘clean tax haven’ has produced a number of concrete results. A report from the International Monetary Fund noted that the authorities had benefited from restructuring and strengthening, and that a high level of compliance with anti-money- laundering activities was now in place. Recently, the integration of the previously diverse organisations that supervised different financial activities into a newly minted Financial Market Authority has helped give Liechtenstein its new reputation as a respectable, forward-thinking financial centre. Meanwhile, the Crown Prince has handed over his day-to-day responsibilities to his eldest son, Prince Alois; and from their picturesque castle, the royal family look out over a fiefdom that is tiny but thriving,

long-established yet modern. Next time you’re heading up the N13 autobahn, take your foot off the pedal, turn right, and go take a look.


Show comments
Close